According to Standard & Poor's Dow Jones Indices, the $2.08
trillion that was wiped off global equity markets on Friday
was the biggest daily loss ever — topping the Lehman Brothers
bankruptcy during the 2008 financial crisis and the Black Monday
stock market crash of 1987.

This emotional response to a political shock is actually
quite typical of investor (or, more broadly, human) behavior.
Geopolitical events tend to make traders and investors nervous,
which then sometimes leads to volatility in financial
markets.

But as history has shown time and time again, these events
generally do not have a sustained impact on markets.

Credit Suisse's head of research and deputy global CIO
Giles Keating and his team reviewed data
last June on major geopolitical events in the previous
100-plus years and found that stocks generally bounced back up
after these shocks.

"The large majority of individual major events — ranging
from the assassination of Archduke Ferdinand 100 years ago
through to 9/11 and recent events in Iraq and Ukraine — impact
major stock markets by around 10% or less, with the effect being
fully reversed within a month or so," he wrote in a note to
clients.

"This suggests that the most profitable strategy has
usually been the contrarian one of buying into price falls caused
by such incidents," Keating wrote.

In light of the Brexit vote, another Credit Suisse research team,
led by Andrew Garthwaite, recently shared a chart showing what
the Hang Seng looked like in the immediate and long term after
the Tiananmen Square protests.

"In our experience, markets tend to over-react to political
shocks, as was seen in the example of Tiananmen Square — where
the Hang Seng fell 22% in a single day, losing 37% from its peak
over the entirety of the protest period, before steadily
recovering back to previous peak over the following year," the
team wrote.

Credit
Suisse

There have been several times in which markets didn't recover
as quickly after seismic geopolitical events, such as
the invasion of France in 1940 and the Yom Kippur War (which led
to a complete realignment of control over global oil).

But even then stocks saw recoveries within two to three years, as
Credit Suisse's Keating previously pointed out.

"Over the long term, the stock market news will be
good. In the 20th century, the United States endured two
world wars and other traumatic and expensive military conflicts;
the Depression; a dozen or so recessions and financial panics;
oil shocks; a flu epidemic; and the resignation of a disgraced
president. Yet the Dow rose from 66 to 11,497."

And, as an interesting side note, Napoleon — who changed the
global geopolitical order —
defined "military genius" as "a man who can do the average
thing when all those around him are going crazy."